Suppose there are two chemical plants that produce kitchen and bathroom cleaners

Question

Suppose there are two chemical plants that produce kitchen and bathroom cleaners. Through the production process, the plants release toxins into the ocean, polluting the water and killing marine life nearby The following graph shows the marginal benefit (demand) curves for each plant (Plant A and Plant B). Because there is no marginal external benefit from polluting, marginal benefit to consumers equals marginal social benefit. The marginal cost of reducing the amount of pollution for Plant A is more than the marginal cost of reducing the amount of pollution for Plant B MB (Dollars per tonl 400 360 320 280 240 200 160 120 o MB IPlant B) Optimal Tax/Poll. MB (Plant A) 80 40 0 40 80 120 160 200 240 280 320 360 400 POLLUTION [Tons of toxins per day] Help learALL Without government intervention, each plant will emit tons of toxins per day Suppose that the government decides to impose environmental standards that cut each firm's pollution in half to tons per day. This is inefficient because at this quantity of pollution, the marginal social benefit from Plant A's emission is benefits can be increased by having Plant A pollute relatively than the marginal social benefit from Plant B's emission. Therefore, overall social and having Plant B pollute relatively

Explanation / Answer

Without government intervention, each plant will emit 360 tons of toxins per day.

Suppose that the government decides to impose environmental standards that cut each firm's pollution in half to 180 tons per day. This is inefficient because at this quantity of pollution, the marginal social benefit from plant A's emmission is more than the marginal social benefit from Plant B's emission. Therefore, overall social benefits can be increased by having Plant A pollute relatively less and having Plant B pollute relatively more.

If the socially optimal quantity of pollution is 360 tons of toxins per day, which of the following policies leads to the socially optimal quantity of released toxins in an efficient manner?

Environmental standards that cut each plant's emissions in half.....

If proper environmental standards are propsed by the government which reduces the plants emissions to half then the socially otptimal quantity of the released toxins will be in an efficient manner as due to government rules the emissions will be reduced to half and its impact will be more beneficial.

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